Christine Lagarde: Hearing at the Committee on Economic and Monetary Affairs of the European Parliament

Speech by Christine Lagarde, Chair of the European Systemic Risk Board, at the Hearing at the Committee on Economic and Monetary Affairs of the European Parliament

It is a pleasure to address you today in my capacity as Chair of the European Systemic Risk Board (ESRB). When I appeared before this Committee a year ago, I expressed concern that the financial stability perspective seemed to be fading from public debate. This is why I want to commend the Committee for bringing it back into focus through your excellent own-initiative report on safeguarding and promoting financial stability. Your conclusions strongly accord with many of the ESRB’s priorities as well as our risk assessment and I look forward to discussing these topics with you today.

Let me start with some key areas addressed in your report.

First, you stress the importance of a system-wide approach to macroprudential policy. This is central to the ESRB’s work[1]: risks do not stop at borders, nor are they limited to one type of financial entity or activity. We must look at the whole financial system, not just the individual parts. Consequently, one of the ESRB’s priorities is to advance the development of a top-down system-wide stress test. This also aligns closely with the insights from your report.

Second, you stress the need to close regulatory gaps, in particular for non-bank financial intermediaries, such as money market funds. You also emphasise the importance of addressing regulatory shortcomings in the context of crypto-assets, such as stablecoins. The ESRB has consistently advocated addressing these regulatory gaps to enhance financial stability.

I would also like to make a link between two critical points you make in your report.

You call for a cautious approach to simplifying post-2008 reforms: streamlining only when there are clear, substantiated benefits to the real economy and without jeopardising financial stability.